High Court quashes reassessment initiation for failure to consider taxpayers’ reply under section 148A

5-Second Takeaway

The High Court held that an order under section 148A(3) is vitiated if the Assessing Officer does not consider the taxpayer’s specific reply and materials before deciding whether notice under section 148 should issue. Mere reference to circular fund movements or same-day routing of money, without examining the commercial explanation, was held insufficient. The impugned order and consequential section 148 notice were quashed, and the matter was remitted for a reasoned reconsideration after hearing the petitioners and other beneficiaries.

The petitioners challenged reassessment initiation on the ground that the order passed under section 148A(3) did not deal with their reply at all. The assessing authority had noted only the submission of partial bank statements and then proceeded on the basis of alleged circular transactions.

The Court held that section 148A requires meaningful consideration of the reply before forming a belief that it is a fit case for notice under section 148. A bare reference to fund routing, without analysing the commercial rationale or the documents furnished, could not support the formation of belief required by the provision.

The Court also observed that the mere fact that funds moved on the same day did not, by itself, establish accommodation entry or money laundering. Since the specific explanations were ignored, the order was contrary to natural justice.

Accordingly, the order dated 30 June 2025 and the consequential notice under section 148 were quashed. The Assessing Officer was directed to revisit the genuineness of the transactions, hear the petitioners and other beneficiaries, pass a reasoned order, and communicate the decision within a week thereafter.